TREASURIES-Prices dip, Tuesday's payrolls data in focus

Reuters

* September payrolls data on Tuesday next market focus

* Fed to buy $3 bln-$4 bln notes due 2019 and 2020

* Overnight repo costs normalizes at around 0.07 pct

By Karen Brettell

NEW YORK, Oct 20 (Reuters) - U.S. Treasuries prices dipped

on Monday before Tuesday's release of employment data for

September, after a more-than two week, partial government

shutdown delayed economic releases and increased concerns that

the closures will weigh on growth.

Lawmakers late on Wednesday increased the U.S. debt ceiling

until February and reopened the government, turning the market

focus back to when the Fed is likely reduce its $85

billion-a-month bond buying program.

The lack of data, however, has muddied insight into economic

strength and has pushed back expectations over when the Fed is

likely to begin to taper to the first quarter of next year. The

payrolls report was originally scheduled for release on Oct. 4.

"The expectations are probably that it has a better chance

of being stronger because it was pre-government shutdown," said

Charles Comiskey, head of Treasuries trading at Bank of Nova

Scotia in New York.

Comiskey sees reaction to the report as likely to be muted

because of the delay in its release. This will give greater

importance will be the payrolls report for October, to be

released on Nov. 8, after being originally scheduled for Nov. 1.

"I think the market is already looking at the report for

October, that will be more important in terms of what the

near-term is, and also Fed policy," Comiskey said.

Benchmark 10-year notes were last down 2/32 in

price to yield 2.60 percent, up from 2.59 percent late on

Friday. The yields rose as high as 3 percent on September 5,

before the Fed surprised investors by keeping the size of its

bond purchase program unchanged.

Among other data the department rescheduled was the consumer

price index for September, which will now be released on Oct.

30, and the producer price index for September, now due on Oct.

29.

Chicago Fed President Charles Evans said on Monday that it

will likely take months to sort out the picture of the Labor

market and that a tapering of bond purchases may begin later

because of the budget battle in Washington.

The Fed will buy between $3 billion and $4 billion in notes

due 2019 and 2020 on Monday as part of its ongoing purchase

program.

The cost of borrowing overnight against Treasuries traded

back at more normal levels, at around 0.07 percent on Monday.

An influx of cash as investors returned to the market had

sent the cost of borrowing against Treasuries into negative

levels, around minus-0.10 percent, late on Friday.

Concerns about taking possession of Treasuries bills that

were at risk of a U.S. default had disrupted the repo market

before Wednesday's agreement to raise the debt ceiling, making

it more expensive to obtain the loans.

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